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Court of Appeal confirms that financial terms are the governing consideration when deciding effect of a Part 36 offer

In Gibbon v Manchester City Council1, the Court of Appeal emphasised the importance of clarity and certainty in the operation of Part 36 of the Civil Procedure Rules, which provides for both parties to litigation to make offers to settle the dispute, with far-ranging consequences if the other party rejects the offer and then fails to beat it at trial.

The main question before the Court of Appeal was whether a judge is able take into account other factors in deciding the impact of a rejected Part 36 offer on costs to trial (eg the conduct of the parties, any other offers to settle made), or whether the Part 36 rules should be strictly interpreted.

The Court of Appeal held that Part 36 is drafted as a “self-contained code”, and prescribes in some detail the manner in which an offer may be made and the consequences that flow from accepting or failing to accept it. The court found that Part 36 stands alone and is to be read and understood according to its terms without importing other rules derived from the general law, save where that was clearly intended.

In Gibbon, various Part 36 offers had been made by both claimant and defendant. The claimant failed to withdraw one offer, which was first rejected and then accepted by the defendant. The court held that Part 36 is quite explicit and puts the onus on the offeror to take positive steps to withdraw any existing offer if he does not wish it to be available for acceptance. Although arguments in pure contract law were attractive (ie that the defendant’s initial rejection of the claimant’s offer had been enough to render the offer incapable of acceptance at a later date), the court upheld a strict interpretation of Part 36.

Although Moore-Bick LJ stated that “in some cases the demands of clarity and certainty in the operation of Part 36 may appear to produce injustice”, he upheld the strict application of the Part 36 “code”.

The court criticised the 2008 decision in Carver v BAA2, in which the Court of Appeal ruled that in considering whether a judgment was more advantageous to the claimant than a Part 36 offer, the court should take into account all aspects of the case, including emotional stress and financial factors, such as the incurring of unrecoverable costs.

The decision in Carver has been criticised by many commentators on the grounds that it introduces “an unwelcome degree of uncertainty into the operation of Part 36”. Moore-Bick LJ considered that there was “much force in that criticism”. Although the Court of Appeal could not overrule Carver, it stated that “it should be recognised that what may be more important than the factors to be taken into account is the weight that is to be attached to them”. Carver should not be interpreted as opening the way to a wide ranging investigation of emotional and other factors in every case, even where the financial advantage is significant. Success in financial terms should be the governing consideration where the court is deciding how to exercise its discretion.

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